Wheat trades at a record high on drought concerns

DOUBLE WHAMMY:Supply constraints in China along with demand are forcing prices up, as Egypt plans to buy 170,000 tonnes of Australian, US and Canadian soft wheat

Bloomberg

Wheat advanced in Chicago and traded at a record in Zhengzhou, China, as demand increased and speculation increased that a drought in China, the biggest grower, could restrict supply.

Snowfall in China’s major wheat-growing regions failed to ease the drought and the dry spell is likely to affect crops.

Chinese Minister of Water Resources Chen Lei (陳雷) said on Saturday that Egypt, the biggest importer, and Bangladesh announced tenders last week and hedge funds increased their bullish bets on wheat to the highest price in more than three years.

“Reports of possible substantial damage due to the multi-month drought in the major growing areas in China are the main reason for rising prices,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a report today. “While the situation could improve significantly now if enough snow or rain falls [and] so on, concerns are currently determining the picture.”

Wheat futures for delivery in May surged US$0.13.75, or 1.5 percent, to US$9.125 a bushel on the Chicago Board of Trade at 10:24am London time. The price earlier touched US$9.15 a bushel, the highest level since Aug. 22, 2008. September-delivery contracts jumped as much as 3.7 percent to a record 3,110 yuan a tonne on the Zhengzhou Commodity Exchange.

Milling wheat futures for March traded on NYSE Liffe in Paris gained 3.25 euros, or 1.2 percent, to 276.25 a tonne.

Hedge funds and money managers in the week to Feb. 8 increased their net-long positions or wagers on rising prices, by 19 percent to 51,787 contracts, the highest since August 2007, US government data showed on Friday.

About 42 percent of the total area planted with the grain in China’s eight major producing provinces has been hit by the dry spell that may last into the spring, Chinese Minister of Agriculture Han Changfu (韓長賦) said last week.

As of Thursday, the drought had affected 6.75 million hectares of crops, leaving 2.8 million people and more than 2.5 million livestock short of drinking water, Xinhua news agency reported on Saturday.

The weather in China’s growing regions “is one to watch,” Michael Pitts, commodity sales director at National Australia Bank Ltd, said by phone from Sydney.

“The drought will be very significant, if it continues,” he said, referring to its impact on global harvests and wheat prices.

Demand also may be boosting prices. Egypt agreed to buy 170,000 tonnes of Australian, US and Canadian soft wheat in a tender, General Authority for Supply Commodities vice chairman Nomani Nomani said on Friday.

“There’s been a bit of tender business and also private business through the Middle East,” Pitts said. “That’s highlighting the midterm demand and the US is one of the most competitive” suppliers, he said.

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